Air France-KLM Group has launched a €480 million ($620 million) convertible Oceane bond issue, which may be increased up to €550 million.
The 10-year issuance will mature on 15 February 2023, according to the terms of the prospectus.
The French state will subscribe to this issue up to its current 15.9% stake in the group. Air France-KLM said the support of its largest shareholder "demonstrates its confidence in the group's strengths and perspectives."
The bonds' nominal value will represent an issue premium of 30% to 35% over Air France-KLM's reference share price on the NYSE Euronext in Paris.
The bonds will bear interest at an annual yield between -0.02% to +0.73% over the reference rate payable annually in arrears.
BNP Paribas and Société Générale Corporate & Investment Banking are the lead managers and the global coordinators of the transaction. Citigroup, Commerzbank, Deutsche Bank, Goldman Sachs International and Mitsubishi UFJ Securities International are the bookrunners.
Air France will receive up to 60% of the proceeds of the issuance and KLM will receive the remaining sum.
The bonds are being offered through the combination of a private placement today to qualified institutional investors, in France and outside France except in the United States of America, Australia, Canada and Japan. A public offering in France will be held through 22 March.
The final terms of the bonds are expected to be set on 25 March 2013.
Air France-KLM lowered its net debt by €550 million during the year 2012 ended 31 December. The group says net debt reduction was "beyond initial objectives". It maintained its goal of €4.5 billion net debt by the end of 2014 and said further reduction is anticipated this year after targeting €400 million in savings through staff voluntary departures.
At 31 December 2012, the group's net debt position stood at €5.96 billion while long-term debt was €9.84 billion, compared with €9.4 billion at the end of 2011.
Air France-KLM reported €3.42 billion in cash and cash equivalents for the year 2012, up from €2.88 billion in the previous year.
The group had net cash of €3.9 billion and fully available credit lines of €1.85 billion. It issued a six-year €500 million bond with an annual coupon of 6.25% in December 2012.
In 2013, Air France-KLM has €1.3 billion worth of scheduled debt repayment while in 2014, its €750 million Oceane bond at 4.75% matures along with €1 billion worth of debt repayment.